Document Type : Original Article
Authors
1
MA Student of Economics, Department of Economics, Yazd University, Yazd, Iran
2
Associate Professor in Economics, Department of Economics, Yazd University Yazd, Iran
3
Assistant Professor in Economics, Department of Economics, Yazd University Yazd, Iran.
10.22075/jem.2025.36130.1957
Abstract
Today, pollution and climate change, stemming from human activities, present themselves as significant challenges. The dual and ambiguous nature of the role of financial development in either exacerbating or mitigating this challenge is a topic of debate. Some argue that financial development, through the increase in consumption and production leading to higher energy usage, contributes to heightened pollution levels. Conversely, others posit that financial development, by means such as funding environmentally friendly projects and adopting clean technologies, offers the potential for economic growth devoid of pollution. The current study delves into exploring the influence of financial development on environmental pollution. Data from 106 developed, developing, and least developed nations were gathered between 1990 and 2021. The financial development index was computed with four separate indicators across two dimensions (banking sector and stock market) and two stages (flow and stock). Subsequently, a benchmark model was estimated and its alignment with theoretical and empirical research was examined. Ultimately, the financial development indicators were integrated into the initial model. The findings indicated that the influence of the banking industry contributes positively to environmental pollution and has led to environmental degradation. Conversely, the effect of the stock market on environmental pollution is adverse, underscoring the significant responsibility of stock corporations in mitigating pollution. The results suggest the significance of financial development in managing environmental degradation, attaining carbon neutrality, and addressing the climate change challenge. It is imperative to amend and establish legislation, tools, and organizations tailored to environmental concerns. Consequently, it is essential to efficiently distribute financial capital towards socially conscious sectors, eco-friendly businesses, and sustainable initiatives while restricting funding for polluting enterprises and projects.
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